March 20, 2000
CORN AND SOYBEAN PRICES
Corn and soybean prices continue
to be supported by improved demand and by supply concerns. December
2000 corn futures traded to a high of $2.6425 on March 17, while
November 2000 soybean futures traded to a high of $5.59, both
exceeding the late January highs. Last week's price strength was
fueled primarily by forecasts of a continuation of warm, dry weather
into the spring of the year. The National Weather Service 30 and
90 forecasts (through June) showed large areas of below normal
precipitation and above normal temperatures.
The concern about the potential
size of the 2000 crop is occurring in an environment of improved
demand. Economic recovery in some southeast Asian countries, along
with recent large purchases of soybeans by China, underscores
the market enthusiasm about potential export demand. Soybean harvest
delays in South America have also been helpful for U.S. soybean
export prospects. Prospects for increased domestic consumption
of soybean meal in Brazil may also reduce export competition.
Even the lowly soybean oil market has shown some life in the face
of mounting stocks as the market anticipates declining competition
for soybean oil, particularly from palm oil. Longer term, there
is widespread optimism that China will increase agricultural imports
as it enters the World Trade Organization.
Domestically, feed demand prospects
are being fueled by livestock feeding profitability and larger
than expected numbers of livestock. The USDA's March Cattle-On-Feed
report, released on March 17, confirmed a 9 percent increase in
the number of cattle in U.S. feedlots. In addition, there is substantial
pressure being applied to increase ethanol consumption and, in
turn, corn processing.
Increasingly, a scenario of tightening
stocks and higher prices is being anticipated for the 2000-01
corn and soybean marketing year. As usual, however, the evidence
is not all one sided. Some private sources are now anticipating
a slightly larger South American harvest than estimated by USDA
earlier this month. Evidence of continued economic problems in
South Korea and a slowing of the rate of economic growth in China
are also caution flags on the demand side. If China does discontinue
its current practice of subsidizing corn production and exports
as a requirement to enter the World Trade Organization, the U.S.
will likely gain export market share. However, a reduction in
Chinese corn production would presumably lead to increased production,
and reduced imports, of other crops.
On the supply side, the National Weather Service forecast is for
below normal precipitation through June. It is not a forecast
for no precipitation. Moisture levels will likely be such that
the corn and soybean crops get planted early and off to a good
start. The more important questions center around summer weather.
More normal and timely precipitation could still produce a large
crop. A hot, dry summer could obviously result in very small crops.
Meteorologists are somewhat divided in opinions about summer weather.
At this juncture, our expectations
are for continued improvements in domestic and export demand;
below trend yields (but not a disaster) in 2000; a further draw
down in U.S. and world stocks in 2000-01; and higher average prices.
If 77 million acres of corn are planted, about 70 million acres
will be harvested for grain. A national average yield of 125 bushels
would result in a crop of 8.75 billion bushels. Demand might be
strong enough to support consumption at a record 9.6 billion bushels,
even with higher prices, resulting in year ending stocks just
under 900 million bushels. Stocks at a similar level resulted
in a U.S. average price of $2.50 in 1993-94 and $2.71 in 1996-97.
The market is currently offering a 2000-01 marketing year average
price near $2.45, reflecting a weak basis and a small carry. There
appears to be the potential for somewhat higher corn prices, perhaps
with December 2000 futures challenging the contract high just
If soybean plantings reach 75 million
acres, harvested acreage should be near 74 million. A national
average yield of 35 bushels would produce a crop of 2.59 billion
bushels. If demand remains robust, consumption could expand to
2.72 billion bushels, even with higher prices. That scenario would
leave 2000-01 year ending stocks at a modest 200 million bushels.
Stocks near that level resulted in an average price of $6.40 in
1993-94 and $6.47 in 1997-98. Demand, however, is probably not
currently as strong as in those two years. The market is currently
offering a 2000-01 marketing year average price near $5.40. As
in the case of corn, higher soybean prices are expected, IF yields
are adversely affected by 2000 growing season weather.
University of Illinois